A Better Way to Chastise France

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Yes, folks, it finally happened. French President Jacques Chirac
swallowed his pride and placed a let's-be-friends-again phone call
to President Bush.

As well he should have. France's behavior regarding Iraq has been
despicable. In addition to providing Saddam Hussein's brutal regime
with valuable technology, the French government actively worked to
sabotage our campaign against the Iraqi dictator.

Unfortunately, the French people may be just as misguided as their
leaders. French vandals recently desecrated the graves of allied
soldiers. And a poll taken while the war was in full swing showed
that only one-third of the French wanted America to win.

The French people certainly have a right to their opinions, even if
they conveniently forget that they are able to exercise that right
only because of the sacrifices made by American soldiers. But that
doesn't mean France shouldn't suffer any consequences. Many
Americans, for instance, are boycotting French products or
canceling plans to vacation in France. These are fine gestures, but
they aren't likely to have much long-term effect.

A far better way to teach France a lesson is to strengthen our
economy. We live in a competitive global economy, and anything we
do to lower taxes and cut regulation helps attract jobs and capital
from around the world. And because France has an incredibly
oppressive tax system and a bloated welfare state, we can be sure
that French entrepreneurs and investors would jump at the chance to
shift their money to the United States.

There are a number of pro-growth tax policies that would
simultaneously help America and hurt France. President Bush's
proposal to eliminate the double-taxation of dividends is a great
idea, for instance, but his proposal would only eliminate the
double-tax for U.S. residents. Foreigners who invest in the
American economy would still be subject to a second layer of tax.
But if the Bush plan were expanded to cover all shareholders,
domestic and foreign, this would attract more investment funds to
America.

Our economy would benefit in obvious ways. The influx of capital
would boost our financial markets and help create jobs for American
workers. But the icing on the cake is that much of the money would
come from high-tax welfare states such as France. And since the
French government has such a socialist mentality, we can safely
assume that they'd never lower their taxes in an effort to stay
competitive.

The Bush administration also should take this opportunity to
withdraw a proposed IRS regulation that would help countries such
as France impose taxes on foreign money deposited in American
banks. This counterproductive scheme, proposed in the waning days
of the Clinton administration, would hurt our banks, undermine our
competitiveness and drive money from our economy. The White House
has sensibly blocked this regulation from being implemented, but
bureaucrats at the Treasury Department have refused to withdraw
it.

The time has come to kill this foolish IRS initiative, once and for
all. Doing so would be good tax policy, good regulatory policy and
good economic policy. And if those reasons aren't sufficiently
compelling, the White House should kill the regulation so that
exploited French taxpayers can move their money to America. (The
French already can protect their money in Luxembourg and
Switzerland, but wouldn't it be a good idea to have that money in
America, creating U.S. jobs?)

If the people of France want to deposit money in American banks, we
should welcome them with open arms. We certainly shouldn't be
forcing our banks to become deputy tax collectors for foreign
governments -- especially if foreign governments are making it
harder for the United States to win the war against
terrorism.

But we shouldn't just welcome French money. John Fund of The
Wall Street Journal suggests that we encourage more talented
French professionals to immigrate here. France's oppressive tax
system punishes successful people and destroys economic
opportunity. Thousands of highly productive French doctors,
engineers, and scientists would gladly move to America. The French
government would hate to see these people leave, if only because
they are sources of tax revenue for a greedy government. Letting
them come to America, therefore, would be the best of both
worlds.

It would never make sense to change our laws just to hurt another
nation. But we should always adopt policies that will help our
economy grow faster and create more jobs. And if these policies
happen to attract jobs and capital from France, that is a big
fringe benefit. If we're going to punish the French, why not help
ourselves in the process?

-Daniel J.
Mitchell is the McKenna fellow in political economy at The
Heritage Foundation (www.heritage.org), a Washington-based public
policy research institute.